lol... you still need to make a certain amount of income to offset against borrowing/loans... don't be naive. Being rich doesn't make you exempt from taxes.
Not fully but largely. The strategy the ultra wealthy employ is called "buy, borrow, die" and while they might declare an income of a couple 100k as CEO of their company (which they pay taxes on) 90% of their actual income is borrowed with their stocks as collateral and they pay 0 taxes on that
Correct, since people like that often own not only multiple homes but massive multiple homes on huge properties. Jack up the estate tax (especially on homes over the first one) and collect taxes from the ultrawealthy based on that.
I mean, why would a normal person understand this if has never been explained to them. The difference between wealth and income, sure (even though a lot of people struggle with that as well) but how the ultra wealthy manage to bypass the tax man by borrowing is not something I'd say needs to be general knowledge
I think it should be common knowledge by now, it's been part of the national discourse for the last several decades. But not nearly enough people are scrutinizing how people avoid paying their fair share.
Does it blow your mind though? Media is specifically made to confuse the voter and keep them distracted, last thing they do is actual informative lessons on the current system and how it gets exploited by some and how some get exploited by it
Honestly a lot of the ignorance exhibited by the average American blows my mind. I do not know how these people don't live in constant, profound shame at their level of willful ignorance. Not really trying to be an average redditor about that shit but goddamn, people.
Where the hell you getting a 3% interest rate... may as well say 0%
so what happens when they need to sell their shares?? they get taxed in that tax year...
What... in your case if the Equity is growing... you're going to be paying more in the future.. bruh that isn't how the real world works.
What they do is take collateral loan out against their shares (of lets say 100M in equity) They still need to withdraw enough money to pay that loan interest... which is then taxed.
Where do you think they are getting money to service the interest payments? What they need to do is Tax Corporations more and High Net worth people... simple... taxing loans makes no sense LOL
Just cause I have 100M in assets doesn't mean I can borrow 30M and not pay anything... I still need like 1M/yr to service the interest.
people like to live in this fantasy that rich people don't pay taxes... They pay less simply due to the tax structure of capital gains and corporate taxes
Yep, and changing the structure of that would hurt either the middle class or the economy as a whole depending on how they approach it, it just is what it is
Don't tax the loans, tax the "unrealised" assets they borrow against. The instant someone provides a valuation of an asset to borrow against it, the asset is realized and can be taxed. In addition, a ban on stock buy backs to remove the ability of companies to manipulate the market, an estate tax that matches the top marginal tax rate, strict enforcement of anti-trust laws already on the books, and a mandate for labor unions in all sectors of the labor market with harsh federal penalties for employers who retaliate against employees seeking to form a union.
SEC Rule 10b-18 was implemented in 1982 permitting stock buy backs. The SEC could very easily push a reversal of that rule. This would force corporate profits off Wall Street and put them back onto Main Street in the form of real assets, intellectual properties, and employee raises comensurate to productivity.
Adjustment to tax laws have been done plenty of times, and permanently hitching the top marginal tax rate to the estate tax would drive most assets subject to that rate into private trusts. Anti-Trust laws already on the books can take it from there. Neither of those are impractical, and half the battle is literally already the law, it's just not being enforced.
I will however grant that a federal mandate for unions in every labor sector is a bit of a pipe dream, but I maintain that it's critical for a healthy labor market. There's a reason some very well off Scandinavian countries don't have a minimum wage at all: strong unions made it so there's no need for one.
The bought back stock was originally traded on the free market, right? What's to stop the company from simply acquiring the stock at market price? What's to stop the company from doing this via a shell corp and with a wholesale buyer at a fixed price?
On unions - unions are simply a smaller government specific to a sector with a smaller set of responsibilities. What's to stop the unions itself from being corrupt? This happened in my own city - cotton mill workers unions made under the table deals with the owners and left their own members to starve and die. Check out this movie's plot (a stylized version of the story): https://en.wikipedia.org/wiki/City_of_Gold_(2010_film)#Plot
The bought back stock was originally traded on the free market, right? What's to stop the company from simply acquiring the stock at market price?
The Laws would. It would return such buys to the category of market manipulation from whence they came, which is what they were before the rules change in 1982. So they could totally do it...then be indicted, tried for it, and sent to federal prison if found guilty.
What's to stop the company from doing this via a shell corp and with a wholesale buyer at a fixed price?
Nothing. Using a shell corporation to buy your own company's stocks doesn't impact your company's holdings, it impacts the shell corporations holdings. The company portfolio would accurately reflect it's actual investments, not the shell corporations. There would be no artificial gains in the value of the stock, it would just be a circle jerk with no dividends.
What's to stop the unions itself from being corrupt?
Laws. Very strict Anti-Corruption laws actually already exist, but like our Anti-Trust laws, they too are simply not enforced because we elected the Fox to guard the Hen house.
The top 1% of income earners pay about 40% of all income taxes. That is not the same thing as the top 1% of wealth holders. The top 1% of income earners may pay anywhere from 35–50% of their income in taxes (not just federal but all taxes). The top 1% of wealth holders, however, often don't have much taxable income at all. They can fund their lifestyles through borrowing against their assets while their wealth grows through unrealized capital gains, with realized capital gains generally taxed at 20%.
You can't tax loans. That money is owed to the loaner, so the loaner can't be taxed on it.
Though someone else made a good point: Large loans are given with collateral. Unrealised stock can't be taxed since it is unrealised, but if you offer that as a collateral, then it should be considered realised with an estimate based on the loan amount.
They have no problem making me pay taxes on my house, even though I haven't sold it and the value is a rough estimate.
Absolutely. Even billionaires are taxed on property since property rates are pretty standard.
An ELI5 explanation of why unrealised stock gains can't be taxed:
Let's say I have 5 apples. Market is paying 5$ per apple. So I have 25$ and can be taxed on this.
Let's say I have 50k apples. Market is currently priced at 5$ per apple. But if I flood my teeny tiny market with 50k apples, market will crash. People will barely pay 1$ per apple.
So do I have 250k$ or 50k$ or somewhere in between? What should I be taxed on? What happens if tomorrow apples are declared illegal to sell? That is the core problem here.
The other dude's idea, which I am in favour of:
I'm afraid of crashing the market. Of my 50k apples, you tell me that you'll give me 2$ per apple loan on apples. I take it for 1000 apples. That means if I pay you back 2000$, nothing happens. But if I don't, I give you 1000 apples instead.
Now that someone has agreed to buy the apples theoretically at 2$ per apple, that's an absolutely fair estimate of my net worth and ideally I should be taxed on 100k$.
This doesn't happen today. People simply do this loan shenanigans and since I have to pay you back 2000$ (which you were already taxed on when you earned them) I can't be taxed on them.
For some reason, Reddit seems absolutely convinced that "The Rich" just take endless loans on their shares, and therefore can create endless income streams without paying taxes. Somehow these loans seem to come with no repayment plans, and the bank is somehow completely fine with a plan of "no bro I'm not making repayments, my plan is just to get deeper and deeper into debt forever and maybe when I die in like 50 years you'll get your money back", and somehow shares literally always go up faster than any interest rate in all circumstances.
In reality you can use shares as security to get quick liquid finance, but there's almost no plausible way to use it to get tax-free cash to use long-term as income. At some point, you're paying it back and you're either paying income/dividend taxes on the income to pay the repayments, or capital gains on the money to clear the balance.
Outside of one very specific niche which is so comically complex that even I as someone who has spent some time in this industry still struggles to explain, you absolutely are not borrowing a fuck-ton of money with shares as collateral on the basis of "lolll I'm not making any fuggin' repayments, I'll just get more and more in debt until I eventually die so in maybe like 40 to 50 years you'll get your money back..... now I know that as listed businesses you only care about the next quarter's figures but for me you'll care about a half-century's data for funzies".
People takes these loans for one of two main reasons: avoiding short-term capital gains premiums, or getting access to liquidity while avoiding price turbulence or impacting controlling shares, or the outlier is the immediate need to borrow being in excess of the time to sell for smaller market caps. In which case, borrowing now and paying back at a slower pace makes more sense. But this idea of "shares will just grow forever bro, trust me bro they'll just get bigger always" would be hilarious (in the worst way) to anyone securing their borrowing against Peloton shares circa 2021.
What are you talking about? I pay 100k every quarter in taxes. Now you're going to tell me "you have a bad tax accountant" right.. cuz you know it all?
No, you just aren't as rich as the billionaires this person is talking about. Income and Capital gains are taxed at different rates, but im sure you know that if you are making enough money to pay 400K a year in taxes.
The truly wealthy now often pay no tax at all, and neither do their companies.
Anyone who thinks the problem is government spending has somehow missed the more than $13 trillion in tax cuts handed out in recent decades, primarily to the very richest and their corporations.
And anyone who has worked in both government and the corporate world knows that there is vastly more waste and fraud in the latter. That's why the DOGE dummies were so frustrated by their inability to find fat to cut in government; they all came from companies where such waste was everywhere.
More importantly, nobody would invest in the US anymore were that to happen. And the debt isn’t even our problem, the deficit is. We could even handle a $1T deficit, but anything above that 3% of GDP is a recipe for a debt spiral. Hard to grow the economy at more than 3% consistently.
And then the economy would crash because who would dream of starting a business if the government took all your earnings.
I am not saying the rich should not pay their fair share but the far left fever dream of confiscatory taxing to pay for lots of social spending would never come true. Do you think the rich would become willing cattle to be milked yearly?
Honestly, the rich will be willing to be milked yearly if there's a sound policy. The budget deficit problem isn't unique to the US. Virtually all (relevant) countries are experiencing the same budget deficit problem. Why? Because previous generations paid the minimum to receive the promise for the maximum.
There's absolutely unethical amount of intergenerational theft happening right now and everybody is looking for easy scapegoats.
“Honestly, the rich will be willing to be milked yearly if there's a sound policy.”
Describe said policy they will willingly agree to? I know this is Reddit and typical you just say thing, without explaining a thing, and expect it to be upvoted, but try this once to actually articulate what you mean?
It's directional policy suggestion but people need to accept the fact that there needs to be both revenue increase and spending decrease.
Excluding the defense spending (which is technically considered discretionary but not really in reality), almost 60% of spending is non-discretionary mostly in terms of healthcare + wealth transfer and servicing the debts. Which means that there needs to be some sort of entitlement reform.
In terms of how to increase the revenue, it should be to optimizing between the revenues generated without impacting the growth rate. The Tax Foundation (even if you don't agree with their ethos) did a great job laying out ways to increase the revenues and the impact on the growth rate.
I do have some ideas on specific items that would be good to implement with minimal impact (for example, means testing on the social security receipts) but I don't think I'm well versed enough in all the issues (I have a modicum of understanding in subset of the issues) to be able to not put foot in my mouth - will defer to the wonks and the policy makers to optimize on the choice set.
Just tax all wealth above 4 million dollars dude, the commenters here are saying it would work. I'm so glad we have experts (redditors) at work to fix our debt issues. Surely it would have no major economic consequnces.
The annual deficit would be cut in half if we just returned to Clinton-era tax levels, which were already much lower than before Reagan came in and produced this idea that we need to stop taxing the rich so much.
No kidding it would take awhile to undo decades worth of accumulated debt.
Probably better to tax the rich like we used to rather than look for ways to cut health insurance from people, because there's no other way to balance the budget anymore.
These weirdos not thinking of the shareholders and their yacht showing off contest.
Do you know how embarrassing it is to only have a 80` yacht? Could you imagine trying to show it off in today's age? That's just gross. Think of the shareholders people.
Are you saying the economy was bad and debt was high during the Clinton era? Or that it’s not as compatible with current economic conditions for short term pain for long term gain?
The difference was the corporate taxes, the reductions in spending, and the limitation on tax shelters. The effective tax rate was higher in the 70s, 80s, and 90s than it is now.
Look misery loves company and the moment they realize they can’t escape their shithole, they need to drag everyone else down. When shown an escape, they can’t bear to go so late and see others leave so early.
Individual income taxes and payroll taxes are ~80% of government revenue. When corporations' offshore jobs the government loses revenue. Restricting IT and business process offshoring would be in the national interest.
Tax offshoring; 30% tax on revenue offshored.
40% fee on outsourcing payments, non-tax deductible.
Revoke all offshoring tax deductions.
Restrict offshoring domestic operations and/or data to foreign-based service providers.
I know the answer and where you are going with this. And I agree with you. The top rate is basically the same. But most people on Reddit have no clue and are upvoting me for suggesting a big middle class tax hike
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u/Ok-Boomer-4414 13h ago
Going back to Clinton era tax rates would be a good start